Islamic Banking and the Credit Crunch

This paper investigates the effects that the credit crunch has had on the normal differences of Gulf Co-operation Council (GCC) Islamic banks relative to their peers for the period 2000 - 2008. Using the Two-sample t-test with unequal variances, nine ratios for 76 banks are studied to compare measures of liquidity, credit risk, profitability, and efficiency. It suggests that even though conventional banks were statistically more profitable and efficient with superior liquidity risk status during normal economic circumstances, it has been evident that the credit crunch has brought them at par with Islamic banks recording better profitability figures, while they have increased their superiority in terms of credit risk